Japan’s return, China’s stagnation: the two economies compared


29 March 2024 - 13:00

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How are the economies of China and Japan doing? In this article, we’ll confront Asia’s two largest economies.

Japan's return, China's stagnation: the two economies compared

The current economic situations of China and Japan, or at least the narratives that the media provide, have notable differences.

In Tokyo, wages are gaining momentum, the Nikkei 225 stock index has recently broken its 34-year high while the central bank abandoned the era of negative rates after 17 years. Higher-than-expected business investments also allowed the country to avoid a technical recession in the last quarter of 2023, despite weak consumption. In the second reading of GDP, the figure recorded a marginal growth of 0.1% between October and December, compared to the minus 0.1% expected - which had followed a decline of 0.8% in the third quarter; while on a trend basis, the expansion is 0.4% from the -0.4% initially estimated in mid-February.

However, the clouds on the horizon could promise a storm between growing inflation at 2.8% and the political problems of the Prime Minister Fumio Kishida. But a sort of storm, meanwhile, is hitting China. Where the real estate sector continues to create problems, foreign investments are declining and the demographic balance does not seem to bode well.

The economic narratives on Japan and China

A few years ago, China was on its way to global economic dominance while Tokyo languished, amid endless stimulus producing few tangible benefits and the sword of Damocles of a dwindling population. Now Beijing’s progress has undergone a drastic slowdown while the Japanese government, despite being in the midst of a thousand thorny issues, seems to have emerged from the quicksand.

Going into detail we can say that the problems of the Chinese economy had been accumulating for some time, even before efforts to control the Covid-19 pandemic produced a decline in gross domestic product (early 2020). The narrative in the media holds that China’s growth is likely to still be above 4% this year, highlighting export growth and how the country has become a "clean technology powerhouse."

Yet the Dragon’s problems are there and there is no shortage of them. In contrast, “Japan’s ’lost decades’ story is just one example, just an observation, and therefore devoid of statistical significance, but it was contagious enough around the world to reignite narratives of the Great Depression and launched serious fears about secular stagnation,” noted Nobel Prize winner Robert Shiller in his book "Narrative Economics: How Stories Go Viral and Drive Major Economic Events".

As the Japanese press has pointed out, just as the craze for Japan could subside at any moment, China too could simply not find itself on the brink of the abyss but simply be grappling with the emergence of cycles economic that affect every major economy. Navigating the economic narratives provided by the media is therefore complicated.

The problems of Beijing and Tokyo

There is the economy. But then we also find the geopolitical thorns that influence it more or less directly. As for China and Japan, the two countries find themselves facing opposite contexts.

On the one hand, there is Beijing, forced to maintain a balance between the rivalry with the United States and the need to do business with Washington (and with the entire West). On the other, we find Tokyo, one of the new magnets for global investors, ready to carve out a role for itself within the semiconductor market and has always been the home of technological innovation.

The Japanese government - like the Chinese one - must in turn maintain a complex balance: if the Japanese authorities need to trade with the Dragon, it is equally important to rely on the US military umbrella. The feeling is that, at the moment, the "economic narrative" smiles more at Japan than at China.

Original article published on Money.it Italy 2024-04-07 06:47:00. Original title: Il ritorno del Giappone, lo stallo della Cina: le due economie a confronto


# China
# Asia
# Japan

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